Humm surprise U-turn away from BNPL services

Humm (ASX: HUM) has entered into a non-binding agreement with Latitude (ASX: LFS) for the sale of its BNPL, instalment and credit card operations, Humm Consumer Finance. 

The deal is priced at approximately $335m, comprised of 150m Latitude shares (worth $300m based on a $2.00 Latitude share price) and $35m in cash. 

Humm Chairman Christine Christian supports the proposal, saying: 

“HUM’s Board and Management are committed to maximising shareholder value. In this context, we believe that the Latitude proposal is potentially attractive to HUM shareholders and warrants due diligence and detailed negotiation.” 

Post-sale, Humm would emerge as a pure play commercial business focused on SME lending. The commercial business is highly profitable, generating $22.3m net profit after tax (NPAT) in FY21. 

Humm has reiterated that its commercial business is ‘high growth segment’, evidenced by a 100% increase in volumes in the first quarter of FY22. 

Humm: the profitable BNPL 

Humm’s BNPL segment generated $1.2m net profit (NPAT) in FY21. The overall figure was weighed by a $21.6m investment into new products and markets. 

That said, the company forecasts FY22 NPAT to be within the range of -$12m to -$14m, taking into consideration investments in platforms, marketing, people and credit performance.

The return to loss making isn’t without its merits, as Humm forecasts FY22 BNPL volume to be approximately $150m (subject to regulatory approvals), a 50% increase compared to the previous period. 

Another rebrand?

Humm has gone to great lengths to transition into a pure BNPL player. 

In late 2020, the company raised $140m to rebrand from FlexiGroup to Humm. 

In doing so, the company offloaded its commercial leasing operations to focus on driving growth for its installment products such as Bundll for lower-value purchases and Humm90, an interest-bearing product. 

At face value, the sale of Humm’s consumer finance business appears to be at odds with its recent rebranding efforts and focus on becoming a BNPL oriented business. 

Keeping shareholder value in mind

Humm management appears to be in favour of Latitude's proposal, marking the likely U-turn away from the BNPL industry.

There is however, a sound logic as to why this could be potentially attractive to Humm shareholders.

Investors have already witnessed ASX BNPL darlings like Afterpay (ASX: APT) and Zip Co (ASX: Z1P) tumble amid a broad shift away from richly valued tech companies.

The new Humm, which is highly profitable and solely focused on SME lending, could help its share price avoid the ongoing rotation away from technology stocks.

The market was less than inspired by the pending sale of Humm's instalment and credit card operations, with the BNPL's share price down -0.56% in early trade.